3.1 Life Cycle Assessment (LCA) ... Inter Terminals is one of the largest independent storage providers of liquid oil products in northern Europe, and the largest in Scandinavia, with more than 4.25 million cubic meters of storage capacity (approxima

“Life Cycle Assessment (LCA) and Life Cycle Cost (LCC) analysis of the Rockdrain system”. This report covers the later LCA and LCC analysis. In this part, which is performed by IVL Swedish Environmental Research Institute, the energy, resource, and e

• A process for evaluating the total economic worth of a useable project segment by analyzing initial costs and discounted future costs, such as resurfacing costs, over the life of the project

• The concept was introduced in the 1930s as part of U.S. federal legislation regarding flood control

• From the beginning of 1950s it has begun to be used for the evaluation of highway projects

Fundamental concepts

• The value of money today and money that will be spent in the future are not equal. • This concept is referred to as the “time value of money”. • The time value of money results from two factors: (1) inflation, which is erosion in the value of money over time, and (2) opportunity cost. • For cash or existing capital, opportunity cost is equivalent to the benefit the cash could have achieved had it been spent differently or invested. For borrowed money, opportunity cost is the cost of borrowing that money (e.g., the loan rate).

Fundamental concepts

• Inflation reduces the value or purchasing power of money over time

• It is the result of the gradual increase in the cost of goods and services due to economic activity

• The inflation indexes are suggested to be chosen from broad (e.g., Gross Domestic Product chain deflator) to intermediate (e.g., a Consumer Price Index) to narrow sector (e.g., highway construction or resurfacing cost such as road construction index (Vägindex)) depend on how results are to be interpreted r

1 i 1 1 j

Vägindex

• Recognizing that the broader indices may not adequately reflect the development of future costs related to road construction, the Swedish Transport Administration adopted a road construction cost index entitled the ‘Vägindex’ (STA, 2012)

• The use of the Vägindex was criticized by the Swedish National Audit Office (NAO, 2010)

Vägindex

•

Cost trends in the road construction sector are not comparable with that of the general economy

• The use of Vägindex does not adequately reflect the cost increases resulting from the relatively high price trends in the construction industry • The widespread use of Vägindex is likely to reduce the awareness of potential future costs at the Swedish Transport Administration since fundamental cost drivers may be disguised

Inflation indices • Trafikvärket (2009) and SCB (2012) 700 600

Swedish road construction index CPI

Normalized Index

500 Crude oil price index (Brent - Europe) 400 300 200 100 0 1988

1993

1998

2003 Year

2008

2013

Inflation indices

• A significant part of the costs associated with asphalt pavements is related to the cost of oil products such as bitumen, fuel oil and transportation fuel.

• Therefore, application of one generalized inflation index based on Vägindex or CPI on the total cost may lead to a false estimation of future costs

Crude oil index

• Products refined from crude oil, such as transportation fuels, gas oil and fuel oil, are obviously closely linked to the price of crude oil and follow oil price fluctuations • There is a lag between the change in the price of oil and that of other fuels • The lag is shortest for oil products, like fuel oil • For electricity the lag is delayed

• The general inflation rate for the time related cost was assumed to be 3% • The average crude oil inflation rate for the last 10 years has been about 20% 40000

3% oil price inflation rate

35000

15% oil price inflation rate 20% oil price inflation rate

30000

25% oil price inflation rate 25000

20000 15000 10000 5000 0 0%

5%

10%

15% 20% Interest rate

25%

30%

35%

Summary

• A transparent framework was presented for asphalt pavement LCC by applying energy and time as a basis for calculations which underlined main financial risks pertaining to asphalt paving works • By applying the energy and time units as basis for cost calculations, the framework imposed separate inflation indices on the energy related costs and the labor/road user related costs • The framework is capable of reflecting the price trends in the energy sector. Therefore, it can increase the awareness for the future costs related to maintenance and rehabilitation activities

Summary & Conclusion

• The prices of different energy sources in Europe during the recent years more or less have followed the fluctuation of the oil price • Therefore, the crude oil inflation index was chosen as the inflation index for all energy sources • The country general inflation index was used for the time related items

Summary & Conclusion

• The sensitivity analysis regarding the transportation distances showed that the transportation distances has a high impact on the total cost of asphalt pavement • Therefore, it is believed that the transportation distance is one of the most important factors regarding the high variation in the price of laid asphalt pavements in Sweden

Summary & Conclusion

• In Sweden price of oil products are mostly affected by the global economy rather than the national economy • Despite the price index of oil products which had a high fluctuation in different time periods, the cost fluctuation related to labor and equipment has been steady and followed the CPI • Therefore, energy and time related costs are in this framework treated with different inflation indices in order to perform a better financial risk assessment regarding the future costs

Summary & Conclusion

• The calculated discount rate based on this model for the last 20 years was -4% which means the future costs in this period have been more expensive due to discounting • Therefore, by assuming the similar pattern for the coming future, it is highly beneficial to minimize future costs • This can be done by increasing the material quality to have a better performance regarding cracking and rutting in order to require less rehabilitation in the future • The amount of future user costs regarding energy used by vehicles can also be decreased by using pavements with a lower rolling resistance